On Wednesday, the United States Court of Appeals for the Second Circuit came down squarely in favor of the power of a government agency to resolve cases in the manner it sees fit. The appeals court ruling stems from a 2011 decision in which the outspoken Judge Jed S. Rakoff of the United States District Court in Manhattan refused to approve a $285 million settlement between Citigroup and the S.E.C.

The appeals court ruling means that judicial second-guessing has been rejected in favor of letting the government determine what’s best when it comes to settling with companies or individuals accused of wrongdoing. The appeals court, in effect, told judges reviewing settlements by the S.E.C. to stand down from reviewing the terms of the agreement, writing: “Trials are primarily about the truth. Consent decrees are primarily about pragmatism.”

As a result of the decision, the role of the district judge is largely consigned to ensuring the parties have not pulled a fast one by reaching a corrupt bargain.

In many ways, the S.E.C. has evolved by taking a tougher stand on penalties that it metes out irrespective of the court’s decision.

For decades, the agency had a longstanding policy that did not require defendants to admit any wrongdoing when settling cases. This was done so that the regulatory settlement did not have any impact on private litigation involving the same transactions.

Questions had been raised about whether this tactic was an effective deterrent without requiring the losing party to legally acknowledge any wrongdoing. In 2010, Judge Rakoff reluctantly approved a settlement between the S.E.C. and Bank of America over disclosures related to its acquisition of Merrill Lynch, calling it “half-baked justice at best.”

From there, however, he stepped up his criticisms. In 2011, he rejected the proposed settlement between the S.E.C. and Citigroup. That case involved the bank’s sale of a collateralized debt obligation tied to subprime mortgages before the financial crisis in which Citigroup made about $160 million by taking a negative position on the underlying securities, while investors lost $700 million.

This came on the heels of a settlement with Goldman Sachs over its sales of a similar C.D.O. that required the firm to pay $550 million and acknowledge that disclosure about its role in putting together the security was “incomplete.” Citigroup got off more lightly, with only a $95 million penalty along with repayment of $190 million in profits and interest.

In his review of the Citigroup settlement, Judge Rakoff said that the S.E.C. had to show that it was “fair, reasonable, adequate and in the public interest.” He said that he could not do so without knowing what actually happened in the transaction, because otherwise the court would become “a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.”

Although he did not demand an admission of wrongdoing from Citigroup, Judge Rakoff wanted information beyond just a bare description of a violation.

Even after the S.E.C. and Citigroup provided additional information, Judge Rakoff still rejected the settlement. He was dissatisfied that it would only cost Citigroup what he called “pocket change” as a penalty without any basis to conclude that it acted improperly.

The appeals court found that a district judge reviewing a settlement must be more deferential to the S.E.C. by not asking whether the terms were “adequate,” as Judge Rakoff did.

Thus, the appeals court found that a judge’s responsibility in sizing up the public-interest aspect of any agreement should be limited to determining whether the public “would not be disserved” by the settlement.

By phrasing this requirement as a double negative, the appeals court effectively shifted the burden away from the S.E.C. to prove that the decision to resolve the case and the terms of a settlement provide the kind of relief that is appropriate. Instead, determining what best serves the public interest “rests squarely with the S.E.C., and its decision merits significant deference.”

The appellate court did not abjure all judicial scrutiny of a settlement. It is allowing a judge to ask questions to ensure that no improper collusion took place. “For the courts to simply accept a proposed S.E.C. consent decree without any review,” the appeals court stated, “would be a dereliction of the court’s duty to ensure the orders it enters are proper.”

The appeals court endorsed the requests for more information that Judge Rakoff made to the S.E.C. and Citigroup about the reasons for the settlement. But it also pointed out that the district court “likely had a sufficient record before it on which to determine if the proposed decree was fair and reasonable,” signaling that it expects the settlement to be approved.

So while judges are not just rubber stamps, they are not entitled to ask whether the decision to settle is a good one, or to question the sufficiency of any penalties or other requirements in relation to the underlying misconduct.

Pragmatism trumps a search for the truth when a case is settled. And as long as there is a reasonable basis for the settlement, the appeals court is instructing judges to approve the agreement.

So what impact will this decision have on judicial review of S.E.C. settlements? The S.E.C. now has a precedent that accords it substantial latitude to resolve cases with only minimal judicial scrutiny of the terms of the agreement. Although a district judge can throw up a few roadblocks, the only viable path to derailing an agreement would require establishing there was a corrupt bargain, which will be very difficult to show. So the S.E.C.’s longstanding policy of resolving cases without an admission or denial of liability remains in place.

The important question for companies and individuals involved in an investigation is not so much whether the S.E.C. can get a settlement approved by a federal judge, but whether the agency will demand an admission of a violation as part of the agreement.

After the oral argument in the Citigroup case, the S.E.C., under its new chairwoman, Mary Jo White, announced a change in its policy that will require such an admission in select cases. Since then, JPMorgan Chase and the hedge fund manager Philip A. Falcone have resolved cases by admitting to violations of the securities laws, and more are sure to come.

So the appeals court decision largely restores the status quo regarding the S.E.C.’s authority to enter a settlement. But that does not mean quite as much as it once did if the agency continues to take a more aggressive approach to demanding that defendants admit their liability.